China: Steel Plants’ Scrap Stocks Fall to 4-Month Low

Total stocks of steel scrap at the 61 steel works Mysteel regularly surveys across China were at 2.4 MnT as of February 6, the lowest in nearly four-months or since October 18 last year, according to Mysteel’s survey published on February 7. The total also represented a decline of 15.5% from January 2 or by a large 39% from the prior survey conducted on January 16 before the Chinese New Year holiday.

The existing stocks will be sufficient for 14.2 days of these mills’ daily consumption, based on their present utilization rate, or 0.9 day shorter than in early-February, Mysteel’s latest survey showed.

“The main reason for the plunge in scrap inventories was the reduction in scrap deliveries to steel mills amid the transportation disruptions caused both by the Chinese New Year holiday and the Novel Coronavirus Pneumonia (NCP),” a Shanghai-based market watcher said.

When transportation and domestic steel demand will both return to normal remains an open question as it is still unclear how much longer the battle against the spread of NCP will last. Some construction sites were allowed to resume operations as early as February 10 but others have been told not to restart building work until early March, Mysteel Global noted.

The remarkable rise in finished steel stocks held by steel mills and the weakening of downstream demand have led to declines in Chinese domestic steel prices, a dip that has resulted in the downward adjustment of steel scrap prices.

As of February 9, Mysteel’s national average benchmark price for HRB400 20 mm dia rebar had decreased by Yuan 50/,MT ($7.1/MT) from January 23 to a five-month low of Yuan 3,784/MT including the 13% VAT. On the same day, Mysteel’s steel scrap price index fell Yuan 15.6/MT from January 23 to also hit a five-month low of Yuan 2,569.7/MT including the 13% VAT, according to Mysteel’s database.

For some small-sized independent electric arc furnace (EAF) producers, the squeeze they’re suffering on their profit margins plus the impact of the virus have discouraged them from resuming production at all. “We will lose over Yuan 300/MT if we go back to work at present. Thus, we plan to resume operations in March at the earliest,” an official with a Jiangsu EAF steelmaker told Mysteel Global.